1. SUMMARY: A recent voluntary Carbon Disclosure Project showed
that a few companies are responsible for the bulk of South Africa's
greenhouse gas emissions, which ranks 14th in world for emissions.
The top two emitters, state electricity supplier Eskom and
coal-to-liquid (CTL) supplier Sasol, have ambitious plans to reduce
their carbon footprints, but face tough challenges in implementing
these plans. Eskom is scrambling to meet growing electricity
demand in the face of a supply shortfall and will increase
combustion of dirty coal, before shifting reliance longer-term on
alternatives, like nuclear. Sasol's plans to reduce emissions are
almost entirely based on carbon sequestration, but there are few
suitable geological formations in South Africa where this can be
done. The SAG plans to engage business to fashion a long-term
climate policy over the next two years. End Summary.

2. South Africa's first voluntary Carbon Disclosure Project (CDP)
showed that the country's carbon emissions were dominated by a few
major players. State-owned power utility Eskom, which participated
voluntarily in the project for Johannesburg Stock Exchange-listed
companies, emitted 208 million metric tons of methane and carbon
dioxide in 2006, 40.5 per cent of South Africa's total and 2.8 times
number two emitter Sasol (71 million tons emissions). Sasol is the
world's largest single-point emitter of greenhouse gases (Ref).
Mining companies BHP Billiton and Anglo-American closely followed
Sasol in the ranking. South Africa's response rate for the CDP was
75 percent, much higher than many other countries. Telkom, Arcelor
Mittal Steel SA, and Kumba Iron Ore were among companies that
elected not to participate in the survey or project.

--------------------
Pressure to Go Green
--------------------

3. Environmental Affairs & Tourism Minister Marthinus van Schalkwyk
announced: "Business can assume that government will increasingly
assess, monitor, and regulate greenhouse gas emissions. It can also
assume that there will be a much stricter regulatory framework and a
hefty price on carbon." Van Schalkwyk made his comments on the eve
of his departure to Bali for the UN Climate Change Conference 2007.
Observers expect South Africa to come under some pressure to reduce
its emissions - at more than 440 million tons of CO2 per year, it is
the largest polluter in Africa and the 14th largest greenhouse gas
emitter in the world. South Africa is a signatory to the Kyoto
Treaty, but faces no obligations as a developing country. Van
Schalkwyk briefed business leaders on the outcome of a study on
long-term mitigation scenarios for climate change. This aims to
foster debate on the way forward between government and business and
inform the preparation of a long-term climate policy in 2008/2009.

4. Department of Environmental Affairs & Tourism Chief Director:
Air Quality and Climate Change Peter Lukey stated that his Minister
QAir Quality and Climate Change Peter Lukey stated that his Minister
was committed to South Africa's taking real steps to mitigate
climate change, noting that Africa will be a potential victim of
climate change. Lukey spoke at the November 28 South African
Institute of International Affairs-sponsored conference entitled
"The Second Scramble for Africa - Lifting the Resource Curse".
Lukey underscored the messages from the United Nations
Inter-governmental Panel on Climate Change (IPCC): Measurable
climate change is human-induced and will continue and we
collectively have to take steps to mitigate climate change and adapt
now. He called for South Africa to take a leadership role in
implementing new carbon-friendly, energy-efficient technologies,
rather than waiting to follow the "north".

-------------------------------------------
Eskom Stuck Between a Rock and a Hard Place
-------------------------------------------

5. Eskom faces pressure to quickly overcome a shortage in
electricity supply for South Africa's booming economy. In the short
term, it will refurbish and build more coal-fired plants, increasing

PRETORIA 00004123 002.2 OF 002

its over-whelming reliance on coal. In the longer term, the company
aims to reduce its reliance on coal to 70 percent by 2025, by
significantly expanding its number of nuclear power plants. Taking
advantage of lax environmental laws, and in the interest of saving
time and money, Eskom will not be installing Flue Gas
Desulphurization (FGD) to control harmful emissions at the Medupi
Power Station, under construction in Limpopo. Eskom defends itself
by noting the lack of government regulation on SOX and citing the
additional cost of using FGD technology.

6. Sasol has identified global climate change as a "principal
strategic challenge" in its ability to deploy coal- and
gas-to-liquid technologies globally, according to group environment
expert Fred Goede (Sasol's representative on the IPCC). His
statement accompanied the release of Sasol's 2007 sustainable
development report, accompanied by an "environmental road-map for
the next 15 years, giving particular attention to greenhouse gas and
water management. Sasol is looking to increase its investment in
CTL in South Africa, the United States, China, and elsewhere, but it
is under pressure to implement carbon-capture technologies and
suitable storage solutions. Sasol executives underscored the
company's commitment to researching and developing these
technologies at a workshop it hosted at the U.S.-Africa Business
Summit held in Cape Town November 14-16. Sasol officers echo the
corporate commitment, but admit that South Africa's geology does not
lend itself to easy carbon capture solutions (Ref). On the margins
of the Cape Town Summit, Sasol executives told Assistant USTR Florie
Liser that the company had voluntarily implemented process changes
to reduce harmful emissions despite minimal government regulations.
In recent press reports, environmentalist activists and some Sasol
share-holders criticized Sasol for focusing only on carbon
sequestration, setting the bar too low, and failing to achieve past
targets.

7. COMMENT: Corporate and government responsibility for mitigating
carbon footprints is being actively debated in the South African
press and other fora. In the lead up to the Bali Conference on
Climate Change, the debate has been constructive in that it
recognizes the need for a post-Kyoto multi-lateral arrangement that
includes the U.S. South Africa wants to maintain its economic
growth and recognizes the environmental impact that growth has on
climate change. Moreover, environmentalists are criticizing South
African companies like Eskom and Sasol for not doing much to
mitigate other emissions like SOX and NOX, as well as criticizing
the government for not establishing regulations and standards for
these emissions. Anyone driving through the Gauteng Province around
Johannesburg and Pretoria will notice lots of Eskom smoke-stacks
with little apparent effort to control the visible emissions.

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